How Google sold Motorola at a loss and came out ahead

I keep reading articles that say Google is losing money by selling Motorola Mobility to IBM’s favorite dumping ground for used assets, Chinese manufacturer Lenovo. This is simply wrong.

Yes, Google paid $12.5 billion for Motorola Mobility in 2011. Yes, the company intends to sell much of it to Lenovo for $2.91 billion. But the simple math that yields a $9.59 billion loss is missing a few details.

First, when Google bought Motorola, it wrote off an existing loss against tax, yielding a benefit of perhaps $6.6 billion. Then Google sold Motorola’s set-top box division for $2.35 billion plus stock from acquirer Arris. Add those together and Google is only $640 million out of pocket, if that. But there’s more.

That $640 million bought some great assets. Google is keeping Advanced Technology and Products, the patent and innovation-generating group that’s working on cool projects like the Ara modular phone. Google also acquired a substantial patent portfolio from Motorola, only a fraction of which is going to Lenovo with Motorola. Before this, Google was weak on mobile patents.

While some say those patents have low value in court, they include a number of standards-essential patents that are Google’s ticket to the almost-cartel of mobile phone technology companies. They allow Google to barter with the other players and are a powerful tool for protecting Android against damaging royalty bills — open source software and volume-linked royalties don’t mix.

This would also make the Android bundle more compelling for licensees, discouraging them from going it alone with the open source code. I’m not so sure the rest of the patents are low-value either; I suspect the deal with Samsung was strongly influenced by them.

This deal is not a loss, nor is it a sign of a failure to use Motorola. Google has probably made a profit on the deal, but more important, it has been able to gain valuable tools for negotiation and self-defense in these days of patent craziness. If anything, Motorola was dragging down Google because of its earlier attitudes toward the mobile industry, driving litigation that a wiser approach would have avoided.

My sense was Motorola was not a good cultural fit for Google. Larry Page got rid of those annoyances, made the Android market more competitive by providing Lenovo a brand with which to enter the U.S. smartphone market, bought off Samsung, picked up a patent arsenal and a supersmart R&D group — and broken even in the process. That doesn’t sound dumb at all.

This article, “How Google sold Motorola at a loss and came out ahead,” was originally published at InfoWorld.com. Read more of the Open Sources blog and follow the latest developments in open source at InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.